May 22, 2006

Land tenure security becomes major importance in developing worlds. I choose this issue in the context of Indonesia that the country is well known of land and natural resources abundant. Those resources become invaluable if the policy makers fail addressing the potential of the resources especially land resource. The importance of this issue suggests that land must be secure enough in order to allow the owner to invest in their land and participate in the market as further result improved economic growth. Realizing the important of such issue, the parliament has already passed a decree regarding to agrarian reform and natural resource management in 2001.

Land ownership is diverse across Indonesia because of the cultural difference of the people who living in different islands and even characterized by language diversity. Those systems are resulted in different ways to access land in the society. Some are likely to have private ownership and the others are communal ownership and the combination between the two also exists resulting a variation of land holding and ownership. For instance in communal societies outside Java Island, land was acquired by occupying area hence they claimed it as communal possession. They based the ownership on genealogical or on territorial relationships formalized by unwritten law[2]. Some problems took place as a result of land tenure insecurity. Different type of land ownership has escalated conflicts between local people and other parties. They are basing their claim on different level of ownership for instance local people insisted for their communal right whereas the company approved by the government perceived land as state property.

The debate mainly related to who should entitled land ownership? For some communities, giving it totally to individual will ignore the historical and traditional value. On the other hand, informal right such as communal right is not suitable for market economy, which needs security in terms of property right to ensure the holders are willing to invest in the long term. The further debate deals with the transformation of right by abolishing communal right into individual right. Is it suitable and morally acceptable? About land registration and administration, the main problem is the lack of land based information system intensified by only small part of the land in Indonesian territory has been registered. World Bank (2005) found that 17 million parcels of land have been registered leaving the other 63 million parcels are lack of legal protection.

In addition to that institution capability is still in question to conduct such registration and land administration. A range of possible policy responses has been identified as follows: · Government should design system of land ownership in order to foster investment and market economy · Government should ensure that land be available for all people · Government centrally controls and manages the land under state property rightFrom those responses, the first response is going to be assessed in this paper. The reason of choosing this response that it is important for the people under uncertainty circumstances to get land ownership. The fact that the variety of land tenure system in Indonesian is obvious, it generates insecurity in terms of ambiguity of land right, high transaction cost and difficulties to place land in the market economy.

It is widely accepted that by giving right to individual therefore it makes the owner to invest in the land or at least manage them in order not to be degraded. Not doing so may increase the cost such as maintenance costs. Therefore to maximize benefit, the owner had better doing investment on the land. In the long run, individual right provide more security to the owner. From government side, land registration potentially increases tax revenue. Only by securing land ownership, government can collect land tax. Land also plays a role as critical safety net in crisis time. It means that land ownership gives the opportunity to the owner instead keeping it as dead capital; he can sell the land during crisis time. It is argued that credit market will work after property right is secure enough however it is not always the case. Informal credit market as oppose to formal credit market that is bank and formal financial institutions may exist and provide credit to the people. One of them is moneylenders that sometimes operate based on a trust between them and the borrowers.

Besides that, people could use other form of property such as motorbike as collateral while not having land. In addition to that, some counter argument for this policy proposal. First, there is a tendency to land polarization since market made it possible for transferring land easily. As a result, land might concentrated in the hand of people who have ability to buy more and more of it. Second, securing property is one condition to foster investment however land investment simply doesn’t happen since information is asymmetric among the owner, the user and the market.

Third, having no paper proof is a big problem but having it also doesn’t solve the problem of land insecurity. There is a case when the same plot has two or more land certificate.Fourth, in order to make land available for individual in communal society, land need to be divided among member of society. This would escalate conflict within community. Then the opposing policy response would allow the existing land tenure system to develop with government as facilitator. By this, government should acknowledge and accommodate communal land right into national land system. As previously discussed, individual land registration ignores the existing communal system and attempt to abolish them however the latter proposal suggest that giving acknowledgement to communal land also improve land security. The position of communal system is often weak when it has to negotiate with external parties. Many cases that local people are ignored from decision making process because their right over land is not recognized. There is a risk by local people when the right is not acknowledged they may be expelled from their land.

The limitation of this process when particular society has been partly even wholly integrated into modern world, thus the system becomes under crisis. It may not in favor but should the people decide what is the best for them either using the system or not. This choice is also valid for those who want to keep using communal system as basis for land management. To summarize the whole set arguments presented above; I would reject the claims that land registration makes the market work and foster investment. Ownership dimension is not about relation between individual and the things that is land but it is a social relation (Sayer, 1995:146). This implied that the way in which relationship is formed have a consequence on land ownership. By owning the land, ones can have power but the others become powerless. Besides market is not a neutral idea; it carries individualist and self-interest value. The value may deteriorate collective value owned by communal society. I propose communal land should be entitled and acknowledge by the state. Past experiences has been shown that indigenous people were easily expelled from the land because their rights were unnoticed. McCarthy (2000) found that state allocation of forest concession often overlapping with pre-existing land tenure hold by community surrounding forest. Not surprisingly conflicts were took place between people and the companies. Therefore government’ acknowledgement is important. In addition to that, the capacity of communal society needs to be improved. This can be done by identifying and mapping the border of communal land with assistance of NGO. These map should be approved and accommodated into national map, spatial planning and land use planning map (Evers 2006:6). Moreover, government needs to develop legal framework that recognizes and protects communal land including dispute settlement when conflict over it take place. -=((o))=-

[2] http://tanahkoe.tripod.com/bhumiku/id3.html accessed on 13 April 2006 at 22.35 pm

May 3, 2006

It has been argue above that both approaches recognized state property right over forest resources but have different point of view. CBA view state property right enforces the process of social differentiation that leads to depeasantinization. As the result, CBA would see the workers as a social class, encounter the worst impact of capitalism in forestry sector compared to concession holders, capitalist class, who get much surplus. In the other hand, NIE has different view that property right is seen as a way to reduce transaction costs. State property right should be chosen because state can be external guarantor in order transfer and exchange is possible (Stein, 1994: 1834). NIE emphasizes the objective of property right is to improve market allocation. In terms of actor involved in forest management, CBA sees that only private sector involved in forest management because state acts to support capitalist interest. on the contrary, NIE would argue that no matter of parties involved in forest management whether big company or small company even community as long as such arrangement would reduce transaction cost. It also would have implication to whom property right be given. Since forest management consists of large capital, it explains in the eye of NIE that only big companies involved. The distinct feature of class-based analysis is an approach based on class as a result of different access to means of production. CBA also clarifies the process of class differentiation however in the case of explaining rural change in forestry sector, it comes slightly different from what CBA argued. In the context of forestry sector, indigenous people never move toward rich farmers nor capitalist agriculture. They would even become landlessness. The transformation of rich peasant to capitalist agriculture, as Lenin said, does not happened. In terms of differentiation based on economic wealth, it happened when some inhabitants works in companies and able to improve their well-being compared to medium or poor peasants. One strength of NIE that it explains the significance of non-market mechanism by acknowledging transaction costs (anon, 2005). Therefore transaction cost becomes one of important feature that should be reduced in order to improve imperfect market. Compared to the other approach from which NIE derived, neo-classical approach, NIE offers more realistic, historical and social in its approach. The central objective of NIE is to reduce transaction costs therefore in the case of property right, it opens opportunity to the other property right regimes such as community-based property right. Moreover, NIE does not have any opposition whether community, private or state property right as long as transaction costs is reduced then it would be acceptable. In some cases that most players are locally based and transaction cost can be reduced so that applying state property right would somewhat increase transaction cost instead of reduced it. To the question of resource degradation, NIE left confusing explanation that as institution develops it assumed transaction costs would be minimized. In the other hand, moral hazard, derived from asymmetric information, sharply have impact to forest degradation. In other words to say that in the reality of forest management, although property right has been set up moral hazard still also happened in parallel. Thus, institution failed to explain how to overcomes this problem. In that sense, weak state might be explanation why environmental degradation happened in the settled institution (Bromley, 1997). CBA obviously is not a perfect approach. The approach has been developed in the context of agrarian society however in the contemporary world differentiation based on agrarian criteria is not really useful. Other basis for differentiation like demographic (anon 2005) and economic wealth might relevant to consider in the context of some wage labors are able to improve their livelihood. Capitalist class nowadays doesn’t only constitute in farmers society but also industrious capitalist who own financial capital. Apart from class approach, it doesn’t consider gender relation, which to some extent produce similar inequality to means of production (anon, 2005).To conclude the discussion above and answer central question in which approach is the most suitable to explain agrarian change in forestry sectors in Indonesia, it is the class-based approach which clarify some points related to the process of rural change. The approach perceived the underlying problems in inequality of access to means of production therefore the process of differentiation become inevitable. As the result, indigenous people forced out from their land and often conflicts took place struggling to get their access back over the land. Some of them might have permanent lost their access to land becoming landlessness. For peasants, the only choice is dissolving into wage laborer. In the context of state property right in forest management in Indonesia, class-based approach demonstrates that the notion of conflicts is persistence over time during the beginning of commercial forest management[5]. Indigenous people become resistance to capitalist pressure because they are the one who get the worst impact of forest exploitation in terms of abandoning their existence as well as their customary right. The approach also explain environmental degradation resulted from expropriated rent by concessionaires. However the approach has weaknesses that is, it doesn’t consider gender relation in which produce similar inequality and theory focuses in farming society but nowadays capitalist class has been developed covering non-landed capitalist such as financial capitalists and knowledge capitalists.

Class based approach (CBA) defines path of agrarian transition, class formation and social differentiation (Kay, 2005). The transition is based on capitalist relationship of production and surplus value of production. In this relation livelihood of people is highly determined by ownership and effective control over productive resources, the means of production, that is land, variable inputs, instruments of production and machines (Ellis, 1993: 47). Therefore social relation of production will explain clearly how relation of serf-feudal lords and capitalist-the workers. From that point of view, capitalists who have control over means of production would also control other social class’ live (serf, the workers). It means that they must work for another social class (feudal lord, the capitalist) to get their livelihood. In the relation of production, social reproduction is needed to maintain a society to renew itself overtime (Ellis 1993:49). It can take form of simple reproduction, which is sufficient to continue production at recurrent level. The other form is expanded reproduction, which require simple reproduction forms plus extra production for raising output further over time. Capitalists use this form of production when surplus produced are continuously re-invested in the new means of production in order to raise future output. It is argued that surplus over and above recurrent needs is prerequisite to increase the output however it is not the case. CBA would argue that class structure in society become important (Ellis 1993:49). In capitalist society, the workers sell their labor and produce surplus for the capitalist class (Ellis 1993:50). They utilize the surplus to reinvest in new means of production to raise output in the successive period. The capitalists can do so because they have control over means of production in contrast to the workers. The implication so far that a process of social differentiation is ongoing which lead to integration of peasants into two social classes in the society that is capitalist farmers and rural wage labor (Lenin as quoted by Ellis 1993:51). The reasons why this is happening are the implication of private property in land, different agricultural technology adaptation, inability to compete with more advance neighbors and growing employment for wage labor in capitalists farming (Ellis 1993:52). In earlier process, differentiation occurs involving rich peasant, middle peasant, poor peasant and landless laborer (Lenin, 1982). In the context of forest property right in Indonesia, CBA would view that state assumed in line with private interest (Kay, 2005). It is not surprising then after announcing forest under state control, there were many private companies involved in forest operation and operated across the country mainly in Sumatra, Kalimantan and Irian Jaya (now Papua). Brown (1999) calculated 585 timber concessions covering 62 million hectares of forest in the end of 1995. The concession companies, most of them, had link with military organization. Dauvergne in McCarthy (2000) found that logging become opportunity for financing political and military ellites at that time. Passing resources to capitalist class has contribution to the process of social differentiation. The fact that MoF gave the concession to private sector without consultation with local people (McCarthy 2000a: 104), lead to social differentiation and changing structure of access to land and resources. While concession was operationg in particular forest area, people were losing their access to forest in term of access to land, food and income. Most of forest dwellers depend on forest in order to survive for example Dayak communities in Kalimantan had developed market for timber and non-timber products such as rattan traditionally with China and Arab for centuries[4]. Furthermore, in the early 1970s, the government mapped, demarcated and allocated management of forest area which known as production and protection forest (Peluso and Harwell 2001:94-95) given forest zoning as a tool for organize space and control of its use. This implied that forest enclosure prevail to exclude and abandon the existence of indigenous people, expelled from their land and unable to take part in capital-intensive forest management unless being wage workers. There have been evidences in Europe of the sixteenth until eighteenth centuries that enclosure escalated conflict and local resistance similar to Asia during colonialism period (Peluso 1992:14). The conflicts are still happening since forest has been allocated to private sector, indigenoues expelled from accessing the source of livelihood in forest as well as land. Moreover, the externality arises that is forest has been destructed because of concession operation. Magin (2001:15) noted the conflict between RAPP (Riau Andalan Pulp and Paper) and 3 villages (Kerinchi, Sering, and Delik) claiming of portions of the 285,000 ha was one of prolonged conflict since 1997. The conflict was escalated when people were occupying the claimed land until company invited police to disperse them. The use of police as state instrument, once again, tells us that state is in capitalist side as class-based already noticed. Related to capitalist relation of production, surplus value, in the context of forestry sector, surplus value has been created through labor exploitation in the form of cheap labor. Rent in forestry refers to a surplus value above its normal profit. Brown (1999) found that when the price of Meranti timber is around US$80, extraction cost in forestry business in Indonesia is around US$17 and putting normal profit US$5, hence the concession still enjoy US$58 as a rent (Brown, 1999). As long as capitalists enjoy the rent, they become addicted for the sake of accumulation motives. Therefore the worst consequences would be bear by indigenous people since they have been excluded, lost their livelihood and push back toward simple reproduction by capitalist (Ellis 1993:53). So that the way to survive would be joining labor regime in capitalist production–in this case to be the workers in concession company.

New institutional approach (NIE) has been a path-breaking approach to the understanding of capitalism (Ankarloo, 2002). NIE has significant contribution because it attempts to make neo-classical economics more historical, realistic and social in its approach. That is why institutions become important to reflect an idea of well-functioning market economy will work if institutional framework is effective. In the NIE point of view, institution exists as a means of reducing transaction and information costs (Stein 1994:1835). The theory assumed that market is imperfect and information is asymmetric in the case that price information on particular product is received differently between the buyers and the sellers. Consequently NIE explains rationality arising out of asymmetric information is bounded depend on information that each parties have. It assumed that market is not working perfectly because of misallocation of resources. In that case, the role of institution is to provide structure for exchange, which reduces transaction and information costs (North 1990 as quoted by Stein 1994:1837). Property right represents agrarian institution, which determined how social, cultural, political and economic relation in agrarian society are conducted (Akram-Lodhi, 2005). In the context of forestry management in Indonesia, state property right represent the way in which it would reduce transaction cost. Considering that large forest area covered by MoF as well as diversity took place within archipelago, state property right is the best way to resolve the problem of property insecurity. In addition, at early 1970s in order to encourage investment especially in forestry, it is important for government had to secure of property right (McCharty 2000b). As soon as property right was settled down to implement exclusivity and transferability of forest, MoF had performed mechanism upon it such as mapping, mark forest boundary and forest allocation. It has been argued that well-functioning market is result from institutional effectiveness. State property right thus acts to make exchange possible especially between the state and investors. NIE would argue that when MoF mark forest boundary, map the forest and allocate them then transaction would be low (Ankarloo, 2002). Stein (1994: 1834) would also suggest that state plays a role as external guarantor to make forest transferable and exchangeable. Furthermore NIE believe that gains from trade would be obtained similar result from that of neoclassical argument. In that point the role of state is obvious in forest management in Indonesia. MoF has set rules and regulation regarding to forest exploitation. As it has been said before that concessionaire would get right to use forest over 35 years as well as the liability of concessionaire to minimize environmental impact during concession period. In addition, the basic forestry law stated that MoF would manage forest by allocating and giving concession right to any parties who are able to comply with concession contract. Considering that forest management is capital-intensive investment, not surprisingly only big companies involved in forest extraction. The famous timber tycoons are Prajogo Pangestu and Bob Hasan, the earlier has concession over 5.5 million ha of forest (McCarthy 2000a: 103) The implication of asymmetric information is moral hazard (Akram-Lodhi, 2005) lead to environmental degradation. Principal agent model (Romstad 2001:100) explained that agent (concessionaire) is more well informed rather than of principal (state). That is why although state impose forest levies in order to control unsustainable practices, concessionaires who have better information try to maximize their profit by choosing the cheapest method that they could. In 1998, forest fire delivered haze, which had cause widespread health problems as well as halt economic activity. Forest plantation companies are one of actors who contributed to the escalation of the fire (McCarthy 2000a: 112). For company it is cheaper to burn the land while preparing the land. Another case is high grading[3] where for profit motives, concessionaire take only valuable species and left others standing. This is because concessionaires know better the location of valuable species even in reality they steal it from other area such as protection forest. Concession arrangement become important for defining secure environment for company to operate as argued by NIE it can reduce transaction costs. Thus, the length of concession has to be taken into account, which gives capacity to concession holder to invest in the long-term. In Indonesia, within period of 35 years, concession holder works under their bounded rationality in knowing whether the concession would be extended or not. In addition, in 35-year concession period, company only have 1 round forest extraction which means companies do not have any incentive to replant even recover any environmental damage because of such uncertainty above. As a result, they turn uncertainty over concession period into maximizing timber production as already describe above.

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